The State Auditor’s Office released an audit report on the Railroad Commission’s administration of a fund that uses industry fees to plug abandoned wells and clean up abandoned oil field sites, concluding that the Commission is effectively overseeing the fund.

The current Oil and Gas Regulation and Cleanup Fund (formerly called the Oilfield Cleanup Fund) was created by the Texas Legislature in 1991 to use industry fees to plug abandoned wells and remediate abandoned sites statewide that pose a potential high pollution risk. From Fiscal Year 1992 through FY2012, the Commission has used the fund to plug 29,004 abandoned wells statewide at a cost of $188,311,929.

The fund has also been used to clean up, assess and investigate 4,950 abandoned oil field sites at a cost of $60,534,744 since FY1992. The Commission has $18.9 million available to plug abandoned wells and clean-up abandoned oil field sites for FY2013.

“Most Texas oil and gas operators are responsible and plug their own wells,” Chairman Barry Smitherman said. “However, for those wells that have been abandoned, this audit report illustrates that commission staff is responsibly and diligently ranking abandoned wells by risk and administering industry fees to plug and clean up the highest risk abandoned wells and orphaned oil field sites.”

The commission has an industry-funded safety net in place to take care of any abandoned high-risk wells and sites and a risk assessment method to prioritize plugging and cleanup of these sites according to commissioner David Porter.

“In addition to this industry-financed fund, another vital component of making sure operators take responsibility for their wells is the commission’s required financial assurances,” commissioner Christi Craddick said. “The state audit report found that the commission has effective processes and related controls to ensure operators establish and maintain their required bonds or letters of credit.”

State Audit Report key findings include:

• The commission follows a process for prioritizing and recommending oil and gas wells for plugging that incorporates risk-based factors.

• The commission establishes annual operational goals for the number of wells each Commission district office should plug.

• The commission has designed and implemented effective processes and related controls to help ensure that regulated entities establish and maintain financial assurances in amounts consistent with state law and administrative rules.

• The commission has adequate processes and controls to help ensure that it sends demand notices to operators that do not submit required annual organizational reports.